Tax Planning
How to Optimize Your Taxes Under Canada’s First Marginal Rate Cut
Canada has cut its lowest personal income tax rate—learn how this affects your non-refundable credits, take-home pay, and tax planning opportunities.
By NomadicTax Research Team • 5-8 min read • June 26, 2026
## What’s Changed?
Canada has reduced the **lowest federal personal income tax rate**: 15% to **14.5% for 2025**, and 14% **starting in 2026 and thereafter**. This rate directly impacts the **value of non-refundable tax credits**, such as the basic personal amount, medical expense credit, caregiver credit, etc. ([canada.ca](https://www.canada.ca/en/department-finance/services/publications/report-impact-reducing-lowest-marginal-personal-income-tax-rate-non-refundable-tax-credits.html?utm_source=openai))
## How It Impacts You
- **More disposable income**: Lower withholding if you're on payroll—savings of up to \$420/year for individuals, or \$840 for dual-income families. ([canada.ca](https://www.canada.ca/en/department-finance/services/publications/report-impact-reducing-lowest-marginal-personal-income-tax-rate-non-refundable-tax-credits.html?utm_source=openai))
- **Tax credit reductions**: Non-refundable credits are worth less dollar-for-dollar when multiplied by a lower tax rate. So if you rely on those credits, the benefit shrinks.
- **Marginal relief for low-income brackets**: If you’re near the bottom tax bracket, your tax savings can matter more (e.g. someone making \$35,000 vs \$80,000).
## Tax Planning Strategies
### Adjust Payroll and Installments
• Ask your employer to adjust your tax withholdings to reflect the new rate to avoid overpaying throughout the year.
• If you make instalment payments, recalculate them based on the new rate.
### Leverage Tax Credits Differently
• Credits that are **refundable** aren’t affected by your tax rate, so non-refundable ones should be maximized early.
• Itemize and track eligible expenses (medical, caregiver, volunteer firefighter, etc.) to ensure you’re getting full credit.
### Income Timing and Splitting
• If possible, shift or defer income to 2026 when the lower rate (14%) is in full effect.
• Use income splitting strategies (e.g. spousal loans) for families, where allowable, to spread taxable income across lower marginal rates.
## Example
Sarah earns \$40,000/year. Under the old 15% rate, a \$1,000 medical expense non-refundable credit saves her \$150 in tax. Under 14%, that credit now saves \$140—a \$10 drop. However, her overall tax payment drops elsewhere, so her take-home improves more than in many previous years.
## Action Items
- Review your latest pay stub or installments and ensure you’re taxed at the lower marginal rate.
- File all deductions and credits you’re entitled to—non-refundable credits lose value unless claimed.
- Consider meeting with a tax professional to adjust tax planning for the next fiscal year.